A life insurance policy is a contract which helps to cover the financial losses that arise from one’s death. Life insurance policy is a means by which the financial damages that occur from the loss of life are compensated. Human life is believed to be an income generator; and human beings contribute to the welfare of the family. The death of any member of the family by way of an accident, disease or naturally, means a loss to the monetary prosperity of the family. Life insurance policies try to help the bereaved family or individual to minimize this loss.
Life Insurance Policy: Helping the Policyholder and the Family
A life policy helps a policyholder in various ways; both before and after one's death. After a policyholder retires from service, the life insurance policy can offer him/her a pension amount and can also offer the family members some kind of fiscal support as agreed on in the contract.
Life Insurance Policy: A Fixed Operation
Normally, life insurance policies work through a fixed operation. One pays a fixed amount of money, known as a premium, to the insurance company on a monthly, quarterly or yearly basis depending on the contract between the insurer and the insured. The premium amount is measured based on the money the insured person would receive after his/her death or after the life insurance policy matures. After a period of time, it is also possible to gain dividends from life insurance policies. However, most companies do not guarantee this.
Life Insurance Policy: Options
There are four basic types of life insurance policies. They are:
Term life insurance policy
Permanent life insurance policy
Whole life insurance policy
Universal life insurance policy
Term Life Insurance Policy: Term life insurance policies insure the policyholder’s life for a specific period of time. The insured can also periodically alter his/her life insurance policy depending on his/her need. The premium rate is lower for term life insurance policy because it only covers death by accident and nothing else. Other deaths, such as suicides, are not covered. If the policyholder does not die within the insured period of time, he does not get any reimbursement from the insurance company. This kind of life insurance policy is good for young people and students. They can go for short term insurance policies and change them when they start earning a permanent salary.
Permanent Life Insurance Policy: This type of life policy insures the policyholder’s life permanently and also guarantees cash back when the policy matures. This of course, depends on the fact that the insured person keeps the life insurance policy in force by paying regular premiums. This kind of life insurance policy offers various facilities but most people consider the premium of the policy to be on the higher side.
Whole Life Insurance Policy: This type of life insurance policy also secures insurance for one’s entire life. As the premium is high, it is at times not feasible for common people.
The rate of premium for this policy remains fixed for one’s entire life; therefore it is better to insure oneself at a young age so that the premium rate remains low.
Universal Life Insurance Policy: This type of life insurance policy allows many facilities, including insuring one's whole life, provided the premiums are paid on time and the life insurance policy is kept going. This plan charges low premiums and provides fewer facilities.
Life Insurance Policies: Other Types
Other than the above insurance policies, one can also find the following policies:
Juvenile Life Insurance Policy: This policy aids children who need financial assistance at various stages of their lives. It also pays the parents a certain amount of money on the death of their children. Although it does not offer a lump sum amount of premium, the mortality rate among teenagers is so low that this policy has hardly gained any popularity.
Group Life Insurance Policy: This policy is a very profitable one for both the life insurance company and the people who get insured. As a number of people take insurance together, they get to pay a lower rate of premium and the insurance company also acquires a large number of customers. The policyholders, whether they are part of a family or organization, are offered various facilities. One can also leave the group and yet avail this life insurance policy by transferring it to an individual policy.
The group life insurance policy allows the insurance cover to be in force without the policyholder undergoing any medical tests. For this reason, people having a severe illness opt for group insurance, since it may not be possible for them to get individual insurance.